Canadian dollar stumbles after U.S. data surprises

Reuters Staff

5 Min Read

* Canadian dollar drops to lowest level since June 16

* Currency's slide follows better-than-expected U.S. data

* Bond prices shaken down after U.S. jobs report

By Frank Pingue

TORONTO, Aug 1 (Reuters) - The Canadian dollar fell to its
lowest level since mid-June on Friday and was headed for its
second straight weekly loss as U.S. jobs data was better than
expected, offering a boost to the U.S. dollar.

Domestic bond prices were mostly flat as dealers pocketed
earlier gains as the U.S. data lessened their appetite for more
secure assets.

At 9:35 a.m. (1335 GMT), the Canadian unit was at C$1.0277
to the U.S. dollar, or 97.30 U.S. cents, down from C$1.0240 to
the U.S. dollar, or 97.66 U.S. cents, at Thursday's close.

The Canadian dollar was already a touch lower ahead of the
jobs data, but it dropped to C$1.0299 to the U.S. dollar, or
97.10 U.S. cents, moments after the report was released.

According to the data, 51,000 non-farm jobs were cut in the
United States in July, which was better than expectations for
75,000 jobs to be cut.

It was enough to rattle the Canadian currency that has been
steadily moving toward the low end of a range it has occupied
since last November where one U.S. dollar has been worth as
much as C$1.0342 and as little as 97.24 Canadian cents.

"A number of factors have been coming together that suggest
that perhaps the U.S. dollar can do a little bit better overall
in the not-too-distant future," said Shaun Osborne, chief
currency strategist at TD Securities.

"And given that we've have been trading in a fairly tight
trading range for the last seven to eight months, a move onto a
C$1.03 handle here on a sustained basis would suggest that the
topside risks are building for the U.S. dollar."

The Canadian currency is down about 0.8 percent on the week
and with no other key events in the session to sway sentiment,
appears likely to slide for the second straight week.

A slew of factors have been a drag on the domestic currency
of late, including signs of weakness in the Canadian economy, a
retreat in prices for key Canadian exports like oil and gold,
as well as a generally strong U.S. dollar.

Moves in the Canadian dollar are expected to slow as the
session advances as many traders are likely to book out early
ahead of a long weekend on Monday in most of Canada.

BOND PRICES RATTLED

Canadian bond prices handed back the bulk of their early
session gains and were straddling the break-even level right
across the curve as dealers took their cue from the steeper
slide in the bigger U.S. Treasury market.

"In terms of the movement that we're seeing it's generally
sort of a reflection of the U.S., though not as pronounced,"
said Paul Ferley, assistant chief economist at Royal Bank of
Canada.

"With the employment report and the decline not as large as
expected it is providing some optimism in terms of the U.S.
economy."

Despite the better-than-expected jobs figure, Ferley said
dealers should not get too optimistic since the report still
included signs of weakness, mainly the spike up in the
unemployment rate to its highest level in four years.

The overnight Canadian Libor rate LIBOR01 was 3.02000
percent, down from 3.02500 percent on Thursday.

Thursday's CORRA rate CORRA= was 2.9969 percent, down
from 2.9993 percent on Wednesday. The Bank of Canada publishes
the previous session's rate at around 9 a.m. daily.

The two-year bond was up 2 Canadian cents at C$101.44 to
yield 2.929 percent. The 10-year bond rose 5 Canadian cents to
C$104.50 to yield 3.698 percent.

The yield spread between the two-year and 10-year bond was
87.3 basis points, up from 86.1 basis points.

The 30-year bond was down 7 Canadian cents at C$115.13 for
a yield of 4.100 percent. In the United States, the 30-year
treasury yielded 4.614 percent.

The three-month when-issued T-bill yielded 2.42 percent,
down from 2.44 percent at the previous close.
(Editing by Scott Anderson)